Using the False Claims Act to Address Alleged Fraud in the Procurement of a Patent

As some readers may be aware, I am working on a book project addressing the various ways that nations regulate what I refer to as “wrongful patent assertion”—“assertion” both in the sense of “enforcement,” as (for example) when a patent owner files an action for the infringement of a patent that was obtained by means of fraud on the Patent Office, and in the sense of “communication,” as for example when a patent owner knowingly communicates to a supplier the false representation that a competitor’s products infringe.  Of course, these two types of assertion sometimes overlap (as when someone expressly threatens to file suit for the infringement of fraudulently-obtained patent); and there are a variety of legal doctrines that may be relevant in such cases, including claims or defenses arising antitrust law, unfair competition law, the law of unjustified or groundless threats, patent law itself (for example, the inequitable conduct doctrine), or other generally applicable bodies of law (for example, the abuse of right doctrine in civil law jurisdictions).   Each of these claims or defenses comes with its own evidentiary requirements, however, as well as its own consequences, and in general each is intended primarily to carry out a different policy (e.g., preventing market distortion, promoting the integrity of the marketplace, etc.).

A recent decision that Dennis Crouch blogged about the other day, Silbersher v. Valeant Pharmaceuticals International, Inc., falls into the “other generally applicable bodies of law” category.  The claimant is a patent attorney who filed suit under the False Claims Act (FCA), 31 U.S.C. §§ 3729-33, which is one of a small number of qui tam statutes that still exist in the United States.  The basic idea behind a qui tam claim, which dates back to medieval England, is that the claimant sues on behalf of the sovereign, and if successful is entitled to recover some portion of the proceeds recovered on the sovereign's behalf (in cases under the FCA, up to 30% of the government’s damages resulting from the fraud).  In a similar vein, readers may recall the short-lived rise of false patent marking claims about 15 years ago, after the Federal Circuit in a trio of cases interpreted what was at the time another qui tam statute, the U.S.  false patent marking statute, 35 U.S.C. § 292, in an expansive manner.  In 2011, however, Congress put an end to almost all of these false marking claims by amending the statute by  requiring a private claim to provide evidence of competitive injury.

Anyway, as Professor Crouch explains in his post, the defendants here owned a family of patents relating to Apriso, a drug used to treat colitis.  The earliest of these, the Otterbeck patents, claimed a delayed-release formula for the active ingredient, mesalamine.  These, according to the court, "rested on shaky ground" and were the subject of challenge brought by a generic firm-which challenge, however, resulted in a settlement that kept the generic version off the market until 2022.  Valeant also obtained the ‘688 Patent, the point of novelty of which if I understand correctly was the claimed effectiveness of the drug when taken without food.  But this patent was invalidated in an IPR on obviousness grounds--after which Silbersher, the attorney representing the IPR petitioner, filed this suit under the FCA, premised largely on the defendants’ allegedly having made inconsistent statements during the course of yet another patent prosecution, involving the '344 Patent.   The district court dismissed the FCA claim, but the Ninth Circuit reverses.  

At issue is a provision of the FCA, 31 U.S.C. § 3730(e)(4)(A), that reads as follows:

The court shall dismiss an action or claim under this section, unless opposed by the Government, if substantially the same allegations or transactions as alleged in the action or claim were publicly disclosed—

(i) in a Federal criminal, civil, or administrative hearing in which the Government or its agent is a party;

(ii) in a congressional, Government Accountability Office, or other Federal report, hearing, audit, or investigation; or

(iii) from the news media,

unless the action is brought by the Attorney General or the person bringing the action is an original source of the information.

Here, although the information on which Silbersher’s complaint is based is taken from public sources (including the prosecution histories of ‘688 and '344), the specific information alleged in the complaint does not trigger any of the above exceptions.  First, the court concludes that the IPR does not fall within subparagraphs (i) and (ii), because the government is not a party to an IPR, as would be required under subparagraph (i), and because an IPR is not an investigative proceeding, as would be required under the Ninth Circuit's interpretation of subparagraph (ii).  Second, although the various patent prosecutions would fit within subparagraph (ii)--and a Law360 article about the IPR, plus a couple of journal articles allegedly demonstrating the obviousness of '688, also would fit within subparagraph (iii)--the information alleged in Silbersher's complaint is not "substantially the same" as the information disclosed in any single one of these.  Writing for the panel, Judge Sanchez states:

. . .  we conclude that the qualifying public disclosures here do not disclose a combination of facts sufficient to permit a reasonable inference of fraud. To refresh, Silbersher’s  qui tam complaint alleges that (1) Valeant “intentionally withheld material information” demonstrating that Apriso’s effectiveness without food was obvious from prior art (the Brunner and Marakhouski studies) when Valeant filed the ’688 Patent application; (2) Valeant’s claims in the ’688 Patent prosecution directly contradicted its claims in the earlier ’344 Patent prosecution that taking mesalamine with food made the drug more effective; (3) the ’688 Patent was invalidly obtained because Valeant was aware that the Otterbeck Patents were themselves invalid based on prior art and vulnerable to challenge; and (4) by fraudulently obtaining the ’688 Patent, Valeant prolonged its monopoly of Apriso and charged the government an “artificially high price for the drug,” all while falsely certifying that the drug price was “fair and reasonable.”

Translating Silbersher’s allegations into the formula, X stands for the misrepresented facts—Valeant’s claim that it was not obvious that Apriso would be effective without food and that the Otterbeck Patents for Apriso’s delayed-release formula were original discoveries. And Y stands for the alleged truth—it was obvious that Apriso can be effectively administered without food and that the Otterbeck Patents were invalidly obtained. The scattered disclosures possibly reveal both X and Y, but never the combination of the two. . . . Valeant claimed in the ’688 Patent that Apriso’s effectiveness without food was not obvious. Nothing in the prosecution history of that patent, however, reveals the alleged truth—that it was obvious. In mathematic terms, the ’688 Patent discloses X but not Y. The ’344 Patent, meanwhile, has the opposite problem. In that patent prosecution, Valeant claimed it was obvious that Apriso would be effective without food. But the ’344 Patent application contains no misrepresentation, thus disclosing Y without X. To prove fraud under the FCA, the relator must demonstrate that a person “knowingly present[ed]” a “fraudulent claim for payment” to the federal government.

Silbersher’s qui tam allegations provide a critical fact necessary for scienter: Falk and Valeant took conflicting positions in their patent prosecutions of the ’344 and ’688 Patents. Neither of these patent prosecutions, or any other disclosure, reveals that fact. The Law360 article states that “two claims in the [’688 Patent] were obvious based on a collection of references that included press releases from [Valeant] about clinical drug trials and some academic papers.” But the Law360 article does not disclose—nor even imply—that Valeant knowingly withheld information when applying for the ’688 Patent. 

Similarly, the Brunner and Marakhouski studies (and Valeant’s involvement in those studies) reinforce that Valeant understood the obviousness of Apriso’s food-free effectiveness. The studies do not, however, say anything about Valeant’s application for the ’688 Patent. The Law360 article and the medical studies thus reveal Y and not X. 

Finally, none of the qualifying disclosures—the ’688 and ’344 Patents, the Law360 article, or the scientific studies—makes any mention of the Otterbeck Patents, much less disclose anything about the validity of these patents. Valeant allegedly misrepresented to the PTO that Apriso’s delayed-release formula underlying the Otterbeck Patents was an original discovery. The patent prosecutions, however, do not reveal the alleged truth: the patents were invalidly obtained. Once again, the Otterbeck Patents disclose X but not Y.

In sum, the scattered qualifying public disclosures each contain a piece of the puzzle, but none shows the full picture. In his qui tam action, Silbersher filled the gaps by putting together the material elements of the allegedly fraudulent scheme. 

The case was remanded to the district court.

Some Recent Papers on FRAND, Injunctions

The first two were written in collaboration with 4iP Council, so  let's just say the analysis is somewhat more pro-injunction and pro-patentee than I would consider warranted . . . but they're still worth reading, in particular in their discussion of some of the German case law that U.S. readers may not be as familiar with. 

1. Elisabeth Opie has posted a paper on ssrn titled Germany’s Patent Law and High-Tech Strategy 2025: Implications of Recent Amendments to § 139(1) Patent Act for Innovative SMEs, Start-ups and Research Organisations.  Here is a link to the paper, and here is the abstract:

A robust patent protection system is of enormous importance for sustainable innovation. More specifically, companies' financing, commercialisation of their technologies and also their competitiveness depend on it.

 

This paper looks at a sampling of SMEs and research organisations in Germany that help build foundations for further innovation. As illustrated in this paper, German SMEs are very often located in innovation clusters or hubs which are comprised of research organisations, academic sponsors, large and small companies. There are usually led by a team that ensures collaboration across the cluster, access to research, business planning and the promotion of innovation. Innovation clusters, while often having a physical footprint in a specific region, regularly include virtual national and international collaborations. For example, BioRN, the science and business cluster of the Rhine-Main-Neckar region, is one of the strongest biotech hubs in Germany. Covering a region with a radius of 100 km, in which science, industry and government have an ongoing and strong engagement to produce, transfer and create application for life sciences. The cluster recently celebrated its 25th anniversary and currently has more than 130 members: universities, research institutions, ten global pharmaceutical companies (including research and development sites), SMEs, local, regional and federal authorities, the Chamber of Commerce and Industry (CCI) and investors. This impressive line-up explores new ways to transfer results from leading research and academic institutions to industry and local and international markets.

 

It is in this context that this paper examines the extent to which amendments to § 139(1) of the German Patent Act (PatG) regarding protection against patent infringement could have an impact on Germany’s innovation plans.

 

The paper concludes that interpretation of the recent disproportionality defence introduced to the PatG appears in line with the importance of patents and the long-term innovation strategy of successive German governments - currently reflected in the goals of the High-Tech Strategy 2025. Concordantly, it is sustainable, long-term growth of the economy and businesses which reflects the nature of the German SMEs and start-ups - and thus the German economy.

2. Andrés Caturla published a paper titled Licensing of Cellular Standards:  Defining a Willing Licensee in FRAND Negotiations, 39 George Mason L. Rev. 499 (2023).  Here is a link to the paper, and here is the abstract:

 

The unprecedented increase in innovation in the information and communications technology ("ICT") sector experienced in recent years is closely related to the development of cellular standards (2G to 5G). These cellular standards owe their success to the fact that the patented inventions necessary to implement the standards (standard essential patents or "SEPs") are typically licensed on fair, reasonable and non-discriminatory ("FRAND") terms and conditions. Despite the undeniable success of these standards, some U.S. academics and antitrust-law authorities have expressed concerns over SEP owners potentially abusing their dominant position by threatening to use injunctions with the aim to extract excessive royalty rates. On the other hand, there is a growing consensus that injunctions should be granted against SEP users that are proven to be unwilling licensees. This Article will study the extensive insights on the concept of a willing licensee provided by European legal authorities and national courts, which have interpreted and applied the legal framework established by the Court of Justice of the EU ("CJEU") in Huawei v. ZTE. Finally, this Article will explain how, to keep the innovation circle alive, U.S. courts should take a balanced approach as regards the granting of injunctions for SEPs.

3. J.R. Kearl has published a paper titled After eBay: Valid Patents and the Economics of Post-Trial Judicial Options.  Here is a link, and here is the abstract:

The Supreme Court’s eBay decision creates enormous uncertainty about whether the owner of a valid patent has an exclusive right in the face of actual infringement. The Court’s “traditional equitable” criteria for an injunction fail to consider the context where injunctive relief may be warranted: namely, litigation dealing with patents where a jury or court has found the in-suit patent to be valid and infringed and where, barring an injunction, there will be post-trial infringing uses by the defendant. Specifically, it is highly unlikely that a patent holder can show that it will be irreparably harmed or not be made whole, at least in principle, by monetary compensation. In decisions subsequent to eBay, the Federal Circuit has added to the uncertainty by equivocating about whether the holder of a valid patent is entitled to monetary compensation for infringing uses of its patent between the end of a trial and the expiration of the patent if an injunction is not issued.

 

I suggest a simple two-part rule: the prevailing plaintiff is entitled to an injunction unless the infringer can persuade the district court that an injunction will impose social costs that outweigh the benefits of protecting a patentee’s exclusive right to its invention; if the infringer prevails, the patentee is entitled to an ongoing royalty through the life of the patent. This rule adequately protects patent holders’ investment in their patent and avoids the uncertainty created by eBay.

From Around the Blogs: FRAND News

1. Jonathan Ross published a post on EPLAW titled Nokia v. Oppo/FRAND Injunctions, 26July 2203, Mr. Justice Meade, Case No. [2023] EWHC 1912 (Pat).  The post references a recent decision in the ongoing U.K. litigation between Nokia and Oppo.  As described by Mr. Justice Meade, the “essential issue” in this particular proceeding is the following: “having lost on infringement of a SEP [in an earlier proceeding], Oppo would have to choose either to undertake to take a licence on the terms decided at Trial D, or to submit to an injunction on the UK SEP it infringes . . . . Oppo says that that does not apply in the light of the undertakings it has offered to take a licence on terms decided” in pending proceedings before the First Intermediate People’s Court of Chongqing, which apparently is willing to determine the terms of a global FRAND license.  Oppo “says that the undertakings . . . either mean that it is already licensed under the ETSI IPR Policy . . . or at least is a ‘Clause 6.1 Beneficiary’ pursuant to that Policy and therefore entitled to get a licence in due course and not liable to be injuncted” (para. 10).  The court rejects both arguments, concluding that (1) even though clause 6.1 creates a stipulation pour autrui, Oppo is not already licensed, because the terms of the license remain undetermined; and (2)  on the facts presented, Oppo’s commitment to abide by the terms set by the Chongqing court is not enough to make it a clause 6.1 beneficiary.

Florian Mueller has some observations on this decision here.

2. Igor Nikolic has posted a short paper on ssrn titled The Approach of English Courts in SEP Disputes: No Standalone Actions for Determination of Global FRAND Rates.  Here is the abstract:

In 2017, English courts set, for the first time, global fair, reasonable and non-discriminatory (FRAND) rates between parties in a standard-essential patent (SEP) dispute. This has, in the eyes of some experts, placed the UK as a global rate-setter, which does not afford the necessary consideration for the competences of other countries. However, such an interpretation is not entirely true. In fact, the UK’s approach is grounded in patent law and in the assessment of patent infringement and validity. The determination of global FRAND terms by UK courts only occurs at the remedy stage of a dispute. The process is the following: First, the court needs to find infringement of a UK patent. Second, the court must acknowledge the contractual obligation of the SEP owner to offer FRAND terms to the implementer. Third, if the court believes the commercial practice in the specific case consists of global portfolio licensing, it sets the terms within that scope. Fourth, only when the infringer rejects the court-determined FRAND terms, is it subject to an injunction, which only applies to the UK market. In other words, there are no standalone claims for global FRAND royalty determinations independent of patent litigation and findings of infringement and validity of SEPs.

 

This article will scrutinise the position of UK courts in deciding SEP disputes. In particular, it will analyse leading cases and the most recent developments in SEP litigation and will focus on how UK courts characterise SEP disputes and their interpretation of a FRAND commitment. It is hoped that a better understanding of the UK’s position will assist judges, lawyers, and policymakers in resolving SEP disputes in other countries.

3. Alex Baldwin published an article on Law360 titled Big Tech Voices Concern Over EU’s Essential Patent Plan.  The author quotes representatives of various big tach firms, including net licensors such as Qualcomm and net implementers Apple, as well as some patent attorneys.  He finds a degree of support for increased transparency but skepticism over the proposed nonbinding FRAND determination, as well as concerns over the proposed essentiality checks.

4. Rob Rodrigues, Tatiana Machado and Ana Carolina Barros published an article on IP Watchdog titled Brazil Becoming a Relevant Forum for Telecom Patent Litigation.  The article discusses, among other things, a case brought by WSOU Investments, LLC against ZTE, which settled following submission of a court-appointed expert’s opinion that the defendant was infringing under the doctrine of equivalents.